* U.S. manufacturing contraction slows for 5th month
* ISM factory sector improves despite struggling autos
* New orders index climbs above 50 for 1st time since Nov (Refiles to remove extraneous word in the penultimate paragraph) (Recast lead, Adds details, quote)
By Richard Leong
NEW YORK, June 1 (Reuters) - The recovery in U.S.
manufacturing remained intact in May, despite the struggling
auto industry that culminated in the bankruptcy of General
Motors
This manufacturing revival was also seen in China and Europe, raising hopes that the world has moved past the worst of the current economic downturn.
The Institute for Supply Management said its index of national factory activity rose to 42.8 from 40.1 in April. This compares with economists' median forecast of 42.0.
A reading below 50 indicates contraction in the manufacturing sector.
"In my view, this is more evidence that we're getting closer to the end of the recession," said Michael Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut.
The ISM manufacturing index, a closely-monitored gauge among U.S. Federal Reserve policymakers, has risen for a fifth straight month to its highest since September 2008 when the demise of Lehman Brothers deepened the credit crisis that worsened the recession.
The most encouraging aspect of the latest ISM report was the rise in new orders, signaling renewed demand for goods at home and abroad, analysts said.
The ISM new orders index rose to 51.1 in May, surpassing the 50 mark for the first time since November 2007.
But analysts cautioned the manufacturing sector is still in contraction mode with the index stuck below the 50 threshold for the 16th straight month.
"Keep in mind it's situated pretty far below fifty so we have to temper out enthusiasm," said Jack Ablin, chief investment officer with Harris Private Bank in Chicago.
Moreover, GM's widely expected bankruptcy, together with the likely restructuring at Chrysler, could mute the rebound in other parts of manufacturing, analysts said.
"I would think that the bankruptcy and restructuring in the auto industry would tend to slow the rate of recovery right now," Norbert Ore, chairman of the ISM manufacturing business survey committee in Atlanta, during a conference call after the data release.
(Additional reporting by Tom Ryan and Ellen Freilich) (Editing by Theodore d'Afflisio)